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Commission predicts strong growth for Ireland and Germany next year

Brussels increases its growth prediction for the euro zone to 1.2% in 2014 from an earlier 1.1%European Commission issues brighter outlook for Irish economy

The European Commission is forecasting real GDP growth of 1.8% in Ireland this year, rising to 2.9% in 2015.

It also forecasts that domestic demand will grow by 1.1% during 2014, with net exports growing by 0.7%.

The European Commission predicts an unemployment rate of 11.9% for 2014 while inflation is forecast at 0.8%; just 0.3% above last year’s level.

Meanwhile, the current account balance is forecast at 6.8%, one of the highest in the European Union.

The Commission says Irish GDP growth will be driven by further gains in employment and a rise in investment by the private sector, both of which will support domestic demand.

It says the recent stronger growth rates in Britain are important for Ireland because it is the main trade partner for the SME sector, where most jobs are located and created.

The Commission says Government debt is forecasted to have peaked at 122% of GDP last year and will decline to 120% this year, due to the running down of the Government’s very high cash balance.

In line with the Budget, the Commission also projects the 2014 deficit at 4.8%.

Commission increases euro zone growth forecast

In a departure from the gloom of the crisis years, Brussels slightly increased its growth prediction for the euro zone's €9 trillion economy to 1.2% in 2014 from an earlier 1.1% forecast.

This is powered chiefly by a 1.8% jump in Germany.

But the statistics also made clear the scale of the challenge facing Italy and its new prime minister, Matteo Renzi, in turning around the bloc's third-largest economy.

The Commission predicts meagre growth of 0.6% in Italy this year. France is expected to grow by 1% in 2014.

"Recovery is gaining ground," said Olli Rehn, the EU commissioner in charge of economic policy. "The worst of the crisis may now be behind us," he said, cautioning, however, that the recovery was "still modest".

While the improving outlook will relieve the European Central Bank, the figures also outline how Europe still lags the US.

The US economy is expected to grow by around 3% in 2014, boosted by massive money printing programmes that the European Central Bank has been unable to emulate.

Under its statutes, the ECB is banned from buying bonds directly from governments, although it can find ways to buy them from banks, for example, on the open market or accept them as security in return for finance.

Markets expect the ECB's next move could be to offer a further round of cheap, long-term loans to banks.

Complicating the picture further for the ECB, the Commission sees consumer price inflation at well below the central bank's target of around 2%. Inflation is likely to be 1% in 2014 and 1.3% next year.

Today's figures also draw a clear dividing line in the euro zone between southern countries such as Greece, struggling economically and arguing for more freedom to spend, and Germany, buoyed by strong exports and determined to enforce thrift.